Natural gas outlook: Prices fall across the board

Natural gas dry production at selected points in the United States Rocky Mountain region have rebounded during the final two weeks of January, according to data from BENTEK Energy LLC (Bentek).

Production declines took place in this region during the middle of the month, likely due to the effect of a cold front that moved into the region. The cold weather led to a number of reported wellhead freeze-offs, and correlated with production decreases in the San Juan, Green River, Uinta and Piceance basins, according to Bentek.

This was particularly the case in the San Juan Basin, located in Colorado and New Mexico. There, production levels that had been consistently above 2.5 Bcf/d through October and November 2012 fell below 2.0 Bcf/d from January 14, 2013 through January 16, 2013. Heating degree days in the Mountain region rose to 293 for the week ending on January 17, 2013, a 28.5 percent increase on the 228 heating degree days registered for the week ending on January 10, 2013, according to data from the National Oceanic and Atmospheric Administration (NOAA) Climate Prediction Center. By January 24, 2013, daily production levels at San Juan had climbed back above 2.3 Bcf/d, while only 197 heating degree days were recorded for the week ending on that date. Production in the basin has remained relatively steady since then, as can be seen above.

Prices:

Temperatures in the Northeast were in the single digits, but prices were in the 30s. Brutally cold weather helped drive Northeastern prices up at the beginning of the report week. The Northeast United States is somewhat infrastructure constrained and the tight supply-demand balance during extreme cold or heat often leads to price spikes. On Wednesday, January 23, prices at Transcontinental Pipeline’s Zone 6 delivery point, which serves New York City, rose to $35.33 per MMBtu, followed by $37.07 per MMBtu the following day. Prices at the Algonquin Citygate, which serves Boston, also had two days of very high prices, $31.32 per MMBtu on Wednesday, January 23, and $34.59 per MMBtu the next day.

High demand caused Transcontinental Pipeline to issue a system-wide operational flow order on January 24 to correct imbalances. The OFO was lifted the next day. Pipeline imports from Canada helped fill the need for more natural gas. Imports on Wednesday, January 24 and 25 were about 1.7 Bcf/d, almost twice the level at the end of the week when the weather warmed up. Prices began falling Friday, and Northeast prices hit their low for the week on Tuesday (Boston at $4.60 per MMBtu, New York at $3.47 per MMBtu), but expectations of a return of cold weather by the weekend likely contributed to price increases the next day. Even with continued mild temperatures on Wednesday, New York ended the week at $3.99 per MMBtu, while Boston ended at $7.42 per MMBtu.

Henry Hub prices fell during the week from $3.53 per MMBtu last Wednesday to $3.24 per MMBtu yesterday. The price hit its weekly low on Tuesday, January 29 at $3.14 per MMBtu, but rose again slightly at the end of the week. Most pricing points around the country followed a similar pattern as temperatures thawed across most of the lower 48 States.

During the report week supply remained flat and demand fell. Despite the cold weather in the beginning of the week east of the Mississippi, and high heating demand the first few days of the report week, residential and commercial consumption averaged out at 11.6 percent below last week, according to estimates from Bentek. Consumption of natural gas for electric power and industrial consumption also fell by 13.7 percent and 3.0 percent, respectively. Canadian imports fell 9.9 percent and LNG sendout remained at minimal levels. Production rose 1 percent week over week, but was 0.3 percent lower than the same time last year.

At the Nymex, the March 2013 contract moved into the front-month slot and ended the week at $3.335 per MMBtu. This was a decline of 21.9 cents. The February contract expired on January 29 at $3.226 per MMBtu, having lost 24.3 cents during its tenure as the near-month contract. Contracts across the board displayed a similar pattern. The 12-month strip (the average of all contracts between March 2013 and February 2014) also declined, ending the week at $3.653 per MMBtu

Storage

Working natural gas in storage decreased to 2,802 Bcf as of Friday, January 25, according to EIA's WNGSR. This represents an implied net withdrawal of 194 Bcf from the previous week. This week's net withdrawal was 16 Bcf larger than the 5-year average net withdrawal of 178 Bcf, and 45 Bcf larger than last year's average net withdrawal of 149 Bcf. Inventories are currently 202 Bcf (6.7 percent) less than last year at this time and 304 Bcf (12.2 percent) greater than the 5-year average of 2,498 Bcf.

Temperatures during the storage report week were 0.1 degree cooler than the 30-year normal temperature and 2.7 degrees cooler than the same period last year. Temperatures in the Lower 48 states averaged 33.0 degrees, compared to 35.7 degrees last year and the 30-year normal of 33.1 degrees. While overall temperatures were close to normal, temperatures varied somewhat across Census divisions. The East North Central Census division in the Midwest and the Middle Atlantic Census division in the Northeast were relatively cool, averaging 3.6 and 2.9 degrees cooler, respectively, than the 30-year normal. The West South Central division in the South and the Pacific Census division in the West were relatively warm, averaging 4.7 and 3.9 degrees warmer, respectively, than the 30-year normal. Heating degree-days nationwide were normal and 8.7 percent above last year.